Exam 12: Fundamentals of Management Control Systems

Which of the following statements is true regarding decentralization?

One of the key internal controls for any organization is segregation of duties.

Talent Engineering has two divisions,Research and Sales,that share the common costs of the company's communications network.The annual common costs are $2,250,000.You have been provided with the following information for the upcoming year: Calk Time on Network (hours) Research 50,000 60,000 Sales 40,000 165,000 Required (use three decimal places in your calculations): The cost accountant determined $1,350,000 of the communication network's costs were fixed and should be allocated based on the number of calls.The remaining costs should be allocated based on the time on the network.What is the total communication network costs allocated to each division?

Which of the following is considered a responsibility center?

Which one of the following firms is likely to experience dysfunctional motivation on the part of its managers due to its allocation methods? (CMA adapted)

An operating unit that is responsible for revenues only is commonly referred to as a(n):

Assets invested in a responsibility center are included in a performance report of a: Profit Center Cost Center A. Yes No B. Yes Yes C. No No D. No Yes

The Copy Department in the College of Business at State University provides photocopying service for both the Marketing and Economics Department.The following budget has been prepared for the year. Available capacity 6,000,000 pages Budgeted us age: Marketing 3,600,000 pages Economics 1,800,000 pages Cost equation \ 120,000+\ 0.025 per page If the Copy Department uses a dual-rate for allocating its costs,how much cost will be allocated to the Economics Department,assuming the Economics Department actually made 2,100,000 copies during the year?

Kingston Industries has four divisions,commercial,retail,research,and consumer,that share the common costs of the company's computer server network.The annual common costs are $3,600,000.You have been provided with the following information for the upcoming year: Required (use three decimal places in your calculations): a.The cost accountant determined $2,300,000 of the server network's costs were fixed and should be allocated based on the number of connections.The remaining costs should be allocated based on the time on the network.What is the total server network costs allocated to each division?

Cost allocation bases are factors that cost management analysts use to assign indirect costs to cost objects.Ideally,cost-allocation bases should reflect a cause-and-effect relationship between resource spending and use.Ideally,an Activity-Based-Costing (ABC)approach will provide a more accurate and useful accounting for an organization's resources.Recent studies have found that,in spite of increasing costs and diminishing resources,very few Higher Education Institutions use the tools and techniques of an ABC cost allocation system to assign costs to academic departments.While direct costs,such as faculty salaries,are traceable to individual academic departments or courses,many indirect costs,such as facility use,computer use,and student support services,are more difficult to assign.In a traditional approach,many higher education institutions assign such costs based on a single factor,such as the number of courses taught in the university.(Source: Activity-Based Costing for Higher Education Institutions,Management Accounting Quarterly,Winter,2001) Required: (a)Explain why the use of a single-cost driver such as the number of courses may result in inaccurate management information as to the cost of running courses in individual academic departments.(b)For each of the indirect costs listed below,identify an appropriate cost-driver that might be used to allocate costs to determine the cost of offering a single course in an academic department if an Activity-Based-Costing model were used.• Computer use • Facility use • Student services • Course design • Lecturing/class meeting time • Assignment grading

The Document Creation Center (DCC)for Arlington Corp.provides photocopying and document services for three departments in the Minneapolis office.The following budget has been prepared for the year. Available capacity 8,000,000 pages Budgeted us age: Software Development 1,600,000 pages Training 3,000,000 pages Management 2,400,000 pages Cost equation \ 280,000+\ 0.03 per page If DCC uses a dual rate for allocating its costs based on usage,how much cost will be allocated to the Management Department?

Logistics Services Company has recently expanded by acquiring two smaller companies in the transportation industry.Prior to these acquisitions,Logistics Services used a centralized style of organization because it was small enough that the top management team was heavily involved in the day-to-day activities of the firm.Ms.Trane,the CEO,feels that this style is no longer suitable for the larger,more diverse organization.She has hired a consultant to help her and her management team create a new structure which,when developed on paper,will be described to the affected employees and their inputs will be sought.Since no one in the company knows much about management styles,Ms.Trane felt this would be an efficient way to get the ball rolling,but realized the consultants would not have the specialized knowledge about her company and the two acquisitions.One of the first things she feels she will need to do is to explain the benefits of decentralization that will accrue to both the company and the affected employees.Required: Ms.Trane has asked you,as the consultant,to provide her with a general list of advantages of decentralization that she will tailor to her company before presenting it to the executives and other affected employees.

The design and use of management control systems affects how an individual makes and implements decisions.

Which of the following statements is(are)true regarding managerial decisions? (A)The design and use of management control systems affects how an individual makes and implements decisions.(B)Rational managers will always make decisions that are in the best interest of the organization employing them.

The design and use of management con­trol systems uses concepts from which of the following disciplines?

The legal department for Trump Corp.provides legal services for four departments in the Manhattan office.The following budget has been prepared for the month. Buogeted usage: Contracts Pages Reviened Purchasing 160 3,200 Marketing 200 7,200 Training 300 9,000 Management 240 2,400 Costs: Fixed \ 267,000 Variable \ 105,000 Required (use three decimal places in your calculations): If Trump uses a dual rate for allocating its costs,allocating fixed costs based on number of contracts and variable costs based on number of pages reviewed,how much cost will be allocated to the four user departments?

Fixed compensation is generally not linked to measured performance;i.e. ,it is independent of measured performance.

The Copy Department in the College of Business at State University provides photocopying service for both the Marketing and Economics Department.The following budget has been prepared for the year Available capacity 6,000,000 pages Budgeted us age: Marketing 3,600,000 pages Economics 1,800,000 pages Cost equation \ 120,000+\ 0.025 per page .If the Copy Department uses a dual rate for allocating its costs based on usage,how much cost will be allocated to the Marketing Department?

The following is a summarized income statement for McClaron Manor Co.'s profit center 12608 for April: Contribution Margin \ 175,000 Period Expenses \ 11,000 Manager' s Salary \ 2,000 Corporate Expense Allocation \ 8,000 \ 154,000 Which of the following amounts is most likely subject to the control of the profit center's manager? (CPA,adapted)

The controllability concept states that managers should be held responsible for: